The U.S. Securities and Exchange Commission (“SEC”) is continuing to increase its scrutiny of companies that might be taking advantage of investor excitement for blockchain and cryptocurrency (ICO) deals to inflate their share prices and raise funds. On January 8, 2018, the SEC suspended trading in the securities of Hong Kong-based UBI Blockchain Internet, Ltd. (“UBI Blockchain”) through at least January 22, 2018. This action follows the SEC’s suspension of trading in the securities of The Crypto Company announced in December 2017 and three other blockchain-related companies in the summer of 2017.
JA Energy changed its name to UBI Blockchain and announced its plans to use blockchain technology to track food and drug products in 2016. Securities in the company surged from $0.55 a share in February 2017 to $115 per share before the SEC suspended trading. The SEC’s suspension notice explains that it issued the suspension due to questions regarding the accuracy of statements in SEC filings pertaining to UBI Blockchain’s business operations and the “recent, unusual and unexplained market activity in the company’s Class A common stock.”
The SEC also recently suspended trading in securities of The Crypto Company, which engages in consulting on blockchain technology and manages a portfolio of digital assets. Securities in The Crypto Company were trading at around $0.05 a share in September 2017, when their value began to climb and eventually reached $642 in December before the SEC suspended trading. The SEC issued the suspension due to “concerns regarding the accuracy and adequacy of information in the marketplace about, among other things, the compensation paid for promotion of the company, and statements in Commission filings about the plans of the company’s insiders to sell their shares of The Crypto Company’s common stock.”
UBI Blockchain and The Crypto Company are not alone. In recent months, an iced tea company, a cigar manufacturer, and a sports-bra company incorporated blockchain into their corporate names or business plans and saw meteoric rises in their share prices.
It is important that public companies who announce a shift to a blockchain strategy or develop a business model around blockchain give careful thought to the required and appropriate SEC disclosure and reporting criteria. The failure to do so could lead to unwanted suspension of trading, SEC enforcement actions, and shareholder actions.